CUTTING EDGE COMPANIES: Spring 2002

SOCIAL TOPICS (Archive): CUTTING EDGE COMPANIES

CUTTING EDGE COMPANIES
The Student Loan Corporation

Published, Spring 2002

By Ken Scott

This column highlights companies in the business of providing solutions to social and environmental challenges. Featured companies are typically held in the SmallCap Innovations portfolios offered to Walden's clients.

The Baby Boomers' kids are going to college. With education tuition costs up 6 percent in 2001, college isn't getting any cheaper. But, the cost of not going to college keeps rising as well. According to Census Bureau data, those with a college degree on average earned $26,000 (or 82 percent) more than their counterparts with high school diplomas in 2000. This wage premium grew from 62 percent in 1991 and continues a longer-term trend.

An Innovations portfolio company is helping to make higher education a reality for more students. Connecticut-based Student Loan Corp. (SLC) is the largest originator of loans under the U.S. Department of Education (USED) Federal Family Education Loan Program (FFELP). This program is one of two major federal student loan programs that provide loans to college students that are guaranteed by state or nonprofit agencies, and that cap their interest rates for affordability. SLC disbursed $3 billion in student loans to 2 million students in 2001.

SLC benefits from bipartisan federal support for higher education lending. The fiscal year 2002 federal budget earmarked $26.5 billion for new FFELP loans, a 7 percent increase over the previous year. President Bush's 2003 budget requests an additional increase of 15 percent. Demographic forces are also working in SLC's favor. Enrollment in degree-granting institutions is projected to increase 20 percent from 14.8 million in 1998 to 17.7 million in 2010, according to USED's National Center for Education Statistics.

In addition to originating (or making) federally insured student loans, SLC holds and services them through a trust agreement with Citibank. At $18 billion, SLC has the second largest portfolio of such loans after Sallie Mae. SLC's loan portfolio includes subsidized Federal Stafford loans, unsubsidized Federal Stafford loans, Parent Loans to Undergraduate Students, Federal Consolidation loans, and Health Professions Education Loans. Subsidized Stafford loans account for approximately one-third of this portfolio. These loans are need-based and thus make college more accessible to low- to moderate-income students.

Ken Scott is a research analyst and portfolio manager of Walden's SmallCap Innovations portfolios.

The information provided in the above article is for historical purposes only. Such information may no longer be current and therefore should not be relied upon.

The information contained herein has been prepared from sources and data we believe to be reliable, but we make no guarantee as to its adequacy, accuracy or completeness. We cannot and do not guarantee the suitability or profitability of any particular investment. No information herein is intended as an offer or solicitation of an offer to sell or buy, or as a sponsorship of any company, security, or fund. Opinions expressed herein are subject to change without notice.